The “Everything But Arms” (EBA) preferential trade arrangement
of the European Union (EU) has played a significant role in changing Cambodia’s
trade structure, especially after the year 2011 when the EU relaxed the rules
of origin for exports from Cambodia. Thanks to this arrangement, exportation from
Cambodia to the EU grew rapidly with an average compound annual growth rate
(CAGR) of 18% over the past 10 years, while more than 800,000 jobs or about 10%
of the current total workforce have been created. However, Cambodia’s economic
and exportation structure became fragile due to the concentration of exported
products and a high reliance on the EU market. The impact on major industries
of Cambodia will be transmitted to the real sector through various means, such
as through a reduction of exportation, a decline in employment, and pressure being
put on wage growth.
The
partial withdrawal of Cambodia’s preferential access to the EU market due to
concerns related to human rights ascertained in the country may be a warning
sign that Cambodia needs to adjust. However, the scope of the withdrawal of the
EBA arrangement is limited, as it covers only 40 items in categories of travel
goods, textiles and garments, as well as footwear, which account for 20% of
Cambodia’s total exportation to the EU (approximately EUR1 billion) or about 8%
of Cambodia’s total overall exportation. Nevertheless, this may be a risk
factor that will seriously impact Cambodia’s economy in the future if the EU re-examines
the EBA arrangement granted to Cambodia, because the exportation value of
Cambodia’s goods that rely on the EBA arrangement accounts for 96% of
Cambodia’s total exports.
KResearch expects that the growing economic
pressure may force Cambodia to seek new trade agreements to increase export
market opportunities and attract investments in new industries, while Cambodia's
most important strategy at present is undoubtedly its economic cooperation with
China. The supporting effect of the China-Cambodia trade agreement and the
relocation of production bases out of Chinese enterprises to avoid tariffs
caused by the Sino-US trade war, as well as the use of the US Generalized
System of Preferences (GSP) given to Cambodia, will help support Cambodia’s
economy. However, high reliance on Chinese capital to offset trade deficits and
current account deficits may pose a threat to the stability of Cambodia’s
economy, especially if China reevaluates or delays its investment in Cambodia in
the future due to uncertain global economic recovery. Furthermore, the signing
of the free trade agreement between Cambodia and China may not be able to
increase the strength of Cambodia’s industries, because China seeks
opportunities to enter Cambodia’s market rather than to link its production
chain with that of Cambodia. In addition to China, South Korea may become another
strategic economic partner of Cambodia, as there is potential for expanding South
Korea’s textile export markets, and attracting direct investment from South
Korea to develop new industries in order to reduce dependence on the textile
industry in future.
Scan QR Code
Annotation
This research paper is published for general public. It is made up of various sources. Trustworthy, but the company can not authenticate. reliability The information may be changed at any time without prior notice. Data users need to be careful about the use of information. The Company will not be liable to any user or person for any damages arising from such use. The information in this report does not constitute an offer. Or advice on business decisions Anyhow.